OPINION

The ANC's innovative approach to undermining property rights

Charles Simkins |

21 August 2014

Charles Simkins sets out the four characteristics of the govt's methods

SOUTH AFRICA'S NOUVELLE CUISINE: SLICING AND DICING PROPERTY RIGHTS

Historically, redistribution of assets has taken a number of forms. It may take place at the end of a war or as an outcome of a revolution. It may be the result of special action of greater or lesser legality under an authoritarian government. South Africa is developing an approach which differs from all the above. It has the following characteristics:

1. It is based on the creation of new rights which dilute old rights

Before 2002, farmers on individually or corporately owned land had the power to determine who might enter it. No longer. Anyone with reconnaissance, prospecting or mining rights granted by the Minister of Mineral Resources may enter and carry out operations consistent with their rights.

Land owners are entitled to compensation for actual or anticipated loss or damage, the amount to be settled by agreement between the parties or, if no agreement is reached, by arbitration or court order, with the proviso that the Regional Manager may recommend expropriation of the property to the Minister under certain circumstances. No holdouts allowed, but at least the term ‘compensation' retains its ordinary meaning.

It is otherwise in final policy proposals on strengthening the relative rights of people working the land released by the Minister of Rural Development and Land Reform in February 2014. The Minister proposes that the historical owner of a farm land will retain half of his land, while the workers will assume ownership of the other half.

The government will pay for the half of the land shared by the workers. This payment will not go to the historical owner but into an investment and development fund to be jointly owned by the parties and on which the government is represented. Whatever this payment is, it is not compensation. The historical owner does not receive any payment for the loss of half their equity and may receive very little benefit from the state payment into the fund.

The Constitution (at Section 25) requires that deprivation of property must be for a public purpose or in the public interest. The Expropriation Bill before Parliament defines these terms very broadly. In part, this is a result of constitutional provisions (Sections 25 and 36), but the Bill broadens them, especially in the way it defines ‘public purpose' as including any purposes connected with the administration of the provisions of any law by an organ of state.

These developments and others like them point in one direction: growing dilution and porosity of property rights.

Complex ownership of rights to individual parcels of real estate make two key market processes more difficult: sale and purchase, and financing. Sale and purchase make both parties better off; otherwise the transaction would not take place. Complexity of ownership makes the decisions to sell and buy more difficult since different rights holders may have different interests.

Complex ownership also affects financing. It makes assessment of risk more difficult when it comes to new loans. And, in so far as valuations start to depart from market values, holders of existing loans may find their liabilities exceeding their assets with, as recent United States experience shows, adverse effects on loan recovery and hence on the viability of banks.

3. The basis for compensation is far from clear

It was one thing to hammer out the principles governing compensation for expropriation in constitutional negotiations. It is quite another to weigh and determine in particular cases just and equitable payment in light of all relevant circumstances. The Property Valuation Act (17 of 2014) creates of an Office of the Valuer-General, which has to determine the value of a property for purposes of land reform (which includes land redistribution, land restitution, land development and tenure reform).

Valuers must be registered as such, but conventional valuer experience will not suffice to deal with the weighing problem. Everything will be left to (unformulated) regulations to determine criteria, procedures and guidelines. The memorandum accompanying the Act states that escalating land prices have contributed significantly to the slow pace of land distribution and that ‘it has been argued' that it is not desirable to let the market alone determine the pace of land reform delivery.

4. The government's representation of its policies and their scope is incomplete and incoherent

During his tenure, President Mbeki was adamant about his ministers and other government spokespersons remaining ‘on message'. The same has not been the case during the Zuma administrations. As policy issues emerge, different parts of government say mutually contradictory things. For instance, radically different approaches to growth are accorded equal status. There are two explanations for this:

Lack of interest in, and capacity for, tracing out of the full consequences of policy proposals.

In an economy of any sophistication, successful policy requires more than moral claims and political pressure. It needs a grasp of system dynamics and how participants are likely to react to policy change.

Without that, policies designed to deal with one problem will create others not foreseen. One ends up - as in the case of black economic empowerment - with an ever denser thicket of acts, regulations, codes and the like, producing rising frustration all round. Moreover, the desire for state intervention usually outstrips regulatory capacity, in which case an informal system grows up beside the formal one, creating the potential for murky dealings.

Guile

Different representations of a given action are deliberately conveyed to different audiences, not difficult to do in a segmented society. Gwede Mantashe told farmers recently that farms will not be taken from them without compensation. Yes, but...

When nouvelle cuisine first emerged, a South African restaurant owner was asked whether she would serve it. "Nee" she replied, "te min kos." Given the role that coherent and workable property rights play in economic growth, she might have been talking about the institutional requirements for South Africa's continuing development.